Re­tail­ers vs Brands

Don’t ex­pect branded sup­pli­ers to roll over and play dead as re­tail­ers grow.

Progressive Grocer (India) - - Memory Lane -

The re­la­tion­ship be­tween brands and large re­tail­ers is truly one of the “love-hate” kind. There is no doubt that brands love the scale that large re­tail­ers pro­vide them, with the quick ac­cess to a large foot­print in the mar­ket, and the high vis­i­bil­ity. On the other hand, as a ven­dor, they hate the ne­go­ti­at­ing edge that this scale gives the large re­tailer. Brands gen­er­ally rule frag­mented re­tail en­vi­ron­ments such as In­dia. Large re­tail­ers squeeze out more mar­gins in the form of bulk dis­counts, place­ment fees and the like. There’s more: spe­cial pro­mo­tions, dif­fer­en­tial mer­chan­dis­ing and de­liv­ery needs… the list of de­mands seems end­less.

On the other side, re­tail­ers love brands for the foot­fall they bring. The brand typ­i­cally cre­ates a “need to buy” on the con­sumer’s part, and in­vests in cre­at­ing a dis­tinc­tive propo­si­tion, which is valu­able in a clut­tered mar­ket. In many cases the brand would have also ad­ver­tised where it is avail­able. This is all good stuff for the re­tailer, who then essen­tially has to make sure that the brand is avail­able and vis­i­ble in-store to the cus­tomer to con­vert the walk-ins into sales. How­ever, what re­tail­ers don’t like is the fact that brands will gen­er­ally charge a pre­mium of 10-50% over a com­pa­ra­ble generic prod­uct. In some cases the pre­mium may be so high that the brand prod­uct’s price it­self is a mul­ti­ple of a generic prod­uct’s price.

The re­tailer-brand part­ner­ship is a very pow­er­ful one, even from early days. Many con­sumer brands and branded com­pa­nies have scaled up sig­nif­i­cantly with the growth of their re­tail cus­tomers. The US mar­ket due to its sheer size and its evo­lu­tion of­fers nu­mer­ous ex­am­ples in­clud­ing com­pa­nies such as Levi Strauss, Hanes, Fruit of the Loom and Proc­tor & Gam­ble that grew on the back of dis­coun­ters such as Wal-mart and K-mart as well as re­tail­ers such as JC Pen­ney, Macy’s and Sears.

An es­tab­lished brand pro­vides the new re­tailer cred­i­bil­ity, even as the re­tailer pro­vides the brand new shelf-space. Or the other way around: even a new brand pro­vides value to an es­tab­lished re­tailer by iden­ti­fy­ing the mar­ket need, de­vel­op­ing the prod­uct, man­ag­ing sourc­ing and pro­duc­tion, and es­tab­lish­ing the con­sumer’s in­ter­est in the prod­uct, while it is the es­tab­lished re­tailer who pro­vides the much-needed cred­i­bil­ity and pres­ence to the new brand.

What re­tail­ers don’t like is the fact that brands will gen­er­ally charge a pre­mium of 10-50% over a com­pa­ra­ble generic prod­uct. In some cases the pre­mium may be so high that the brand prod­uct’s price it­self is a mul­ti­ple of a generic prod­uct’s price.

For most, this re­mained a happy re­la­tion­ship for a long time even as the re­tail en­vi­ron­ment grew and evolved. Re­tail­ers fo­cussed on cre­at­ing shelf-space and man­ag­ing it, while the brands fo­cussed on cre­at­ing prod­ucts and de­sir­abil­ity.

How­ever, at var­i­ous times eco­nomic shocks and the rise of low-cost im­ports raised ques­tions in re­tail­ers’ minds about the value added by the brand com­pared to the mar­gin they sup­pos­edly made on the higher prices. At the same time, bet­ter com­mu­ni­ca­tion and travel in­fra­struc­ture as well as fall­ing costs made it eas­ier for re­tail­ers to con­sider ap­proach­ing fac­to­ries di­rectly.

En­ter pri­vate la­bel, the “other” in the love-hate tri­an­gle.

Over the last cou­ple of decades, de­part­ment stores, hy­per­mar­kets, gro­cery stores and even dis­coun­ters have worked se­ri­ously on pri­vate la­bel de­vel­op­ment. The open­ing premise was that you could en­tice the cus­tomer with a lower price (shar­ing some of the mar­gin earned by di­rect sourc­ing), and as long as you gave a com­pa­ra­ble prod­uct the con­sumer was happy. Many In­dian re­tail­ers fol­lowed a sim­i­lar route when they be­gan ex­plor­ing pri­vate la­bel routes.

The strat­egy has had a var­ied de­gree of suc­cess, much of it to do with how the pri­vate la­bel has been han­dled (in­dif­fer­ently, in most cases). Recog­nis­ing this flaw, many re­tail­ers around the world have at­tempted to im­prove their han­dling of their pri­vate la­bel prod­uct de­vel­op­ment and also pre­sent­ing it also in a man­ner (in­clud­ing ad­ver­tis­ing) sim­i­lar to a na­tional or an in­ter­na­tional brand. Some of th­ese re­tail­ers’ own la­bels are now se­ri­ous brands in their own right even though they are re­stricted to only one re­tail chain.

The dif­fer­ence be­tween a “la­bel” and a “brand” is the in­her­ent prom­ise that a brand has built into the name, the re­peated ex­pe­ri­ence that the cus­tomer has had with the brand that re­in­forces this prom­ise, and the re­la­tion­ship that de­vel­ops be­tween the con­sumer and the brand. All of this re­quires struc­tur­ing, nur­tur­ing and care­ful man­age­ment, and it costs time, ef­fort and money.

How­ever, brands get into trou­ble if in­come and spend­ing per­cep­tions turn down­wards, and com­pa­ra­ble prod­ucts are avail­able. The 10-plus per cent pre­mium be­tween branded and generic be­gins to look like an im­por­tant sav­ing to the cus­tomer. Or, con­versely, due to the grow­ing mar­ket more sup­pli­ers for the same prod­uct ap­pear that the re­tailer can use as a foil to the branded mar­ket leader. With fall­ing im­port bar­ri­ers, more di­verse con­tract man­u­fac­tur­ing be­comes avail­able for sourc­ing pri­vate la­bel mer­chan­dise. The sce­nario be­comes par­tic­u­larly grim if the re­la­tion­ship be­tween the brand and the con­sumer is not old enough to have be­come last­ing – in this case, re­place­ment of the brand with an al­ter­na­tive or a re­tailer’s own la­bel is truly fea­si­ble.

The growth of the mar­ket over the last few years has at­tracted sev­eral com­pa­nies with al­ter­na­tive prod­ucts and brands. In many cases, the brands that most want to be on the mod­ern re­tailer’s shelves are new to the mar­ket, and don’t yet have a strong im­print on the con­sumer’s mind.

How­ever, at the same time, re­tail­ers them­selves are still de­vel­op­ing the sys­tems and dis­ci­plines to man­age their rel­a­tively new busi­nesses. They are more than fully oc­cu­pied with ris­ing real es­tate costs, and man­ag­ing the front end. If a brand can han­dle the prod­uct and sup­ply side for a rea­son­able mar­gin, they are more than happy to ride with the brand.

There is place for the branded sup­pli­ers in the mar­ket, and for them even to lead the mar­ket. Even as re­tail­ers grow, branded sup­pli­ers won’t lie down or die qui­etly. Many of them are also ac­tively en­gag­ing with smaller re­tail­ers, to help them im­prove their busi­ness pro­cesses and com­pet­i­tive­ness. On the other hand, they are also rec­on­ciled to the in­evitable growth of mod­ern re­tail­ers, and are de­vel­op­ing “key ac­count man­age­ment” func­tions, par­al­lel dis­tri­bu­tion pro­cesses etc. to cater to the large re­tail­ers dif­fer­ently from the rest of the mar­ket.

So, will brands sur­vive, or will it be the re­tailer – with the mus­cle of the store­front – who will rel­e­gate them to a small por­tion of the mar­ket?

As long as the com­pet­i­tive pres­sures and eco­nomic cy­cles re­main, the re­la­tion­ship be­tween re­tail­ers and their branded sup­pli­ers will in­her­ently be a tug-of-war for mar­gin.

In ei­ther case, whether in­di­vid­ual brands or re­tail­ers win or lose in the short term, the con­sumer will hope­fully be a ben­e­fi­ciary in terms of bet­ter prod­uct, more va­ri­ety and some san­ity in terms of prices.

There is place for the branded sup­pli­ers in the mar­ket, and for them even to lead the mar­ket. Even as re­tail­ers grow, branded sup­pli­ers won’t lie down or die qui­etly. Many of them are also ac­tively en­gag­ing with smaller re­tail­ers, to help them im­prove their busi­ness pro­cesses and com­pet­i­tive­ness.

Newspapers in English

Newspapers from India

© PressReader. All rights reserved.